What Netflix effect? Redbox will raise rates instead

Redbox (s CSTR) was expected to be one of the big beneficiaries of Netflix’s most recent price change. But the effect of that change wasn’t entirely apparent in Redbox’s numbers, as parent Coinstar reported revenues Thursday just slightly above Wall Street consensus. Even worse, Redbox announced it is raising its discount $1 a night rental prices by 20 percent.

Coinstar reported third-quarter revenues of $465.6 million, which was just north of analysts’ forecasts of $462 million and above the mid-point for the company’s quarterly forecast of between $450 million and $470 million. But its own forecast was made in mid-July, long before the full extent of Netflix’s price hike and miscommunication with subscribers was known. Since then, Netflix announced that it has lost more than 800,000 subscribers in the U.S.

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With Netflix on the ropes after three months of bad PR, there was some hope that defecting Netflix subscribers would take their dollars and invest them in nightly rentals from DVD kiosks instead. But the expected jump in sales failed to materialize — and for investors, that lack of a big pickup in activity was a big disappointment. In after hours trading, the stock is down more than 10 percent, after rising nearly 20 percent in the previous few months due to negative Netflix sentiment.

That fall in share price could also be due to an increase in daily rental rates that Coinstar announced as part of its earnings release. Redbox will raise the price of a nightly DVD rental to $1.20 beginning next Monday, which is up from the current $1.00 rate today. The company said the rate hike was due to higher operating expenses from increased debit card interchange rates. The company will keep the price of nightly Blu-ray and game disc rentals — at $1.50 and $2.00 a night, respectively — the same, however.

Despite the higher rates and opportunity created by Netflix’s problems, Coinstar actually narrowed full-year guidance in the third-quarter report. After the second quarter, Coinstar gave full-year guidance of between $1.76 billion and $1.85 billion. With the most recent report, the company is guiding to between $1.81 billion and $1.835 billion, reducing some of the potential upside from the earlier forecast.

What’s wrong with Redbox? I tried it a few time after Netflix raised their rates. I discovered it is far more time and effort involved just to see a movie compared to Netflix. Going to my local walmart and back takes 30 minutes round trip not counting wait time. Each time i went, i had to wait in line for 15-30 minutes. At one point, I just got fed up with the wait and left. The movie selection is extremely limited and most of what I wanted to watch was already sold out. I will never go to redbox again so Netflix is still the better alternative for me.

I just deleted my account. This is not “increased operating costs”, it’s greed. Their Debit card costs have DROPPED by 50%, according to the WSJ: “The debit-card fees stem from a provision in last year’s Dodd-Frank financial-overhaul law that reduced by roughly half the amount that banks are permitted to charge merchants for debit-card transactions.” Link is at: is.gd/lVDrgt

Message to them:
Cancel my account and delete my information immediately. Send me an email confirming that you have done so. You may find this surprising, but raising prices in the middle of what is still actually a recession, with about 10% unemployment….is a really dumb idea. Expect to see a significant drop-off in business. Also? The quality of the movies available at Redbox has been continuously degrading over the last year……..you’ve started putting old “B” movies in Redbox and hiding the fact that they were first shown in 1998, etc. In addition, 5 out of the last 7 movies I’ve rented had significant scratching and disc blemish that caused the movie to lock up while being played. Finally, you revamped your website so I can’t search directly in only my “favorite” kiosks, which are closest to me…I have to go find each kiosk in your (always fairly poor) zipcode based list and search each one individually. From a customer use perspective, this is the height of stupidity in website design. I guess I’m telling you that my days of being a Red Box customer are probably over. Best of luck in your future endeavors, whatever they may be.

The email Redbox sent me said this, “The price change is due to rising operating expenses, including new increases in debit card fees.” Looks like they’re choosing to pass those expenses to the consumers

Once again, investors’ emotions and speculations get in the way. I’m looking for non-public companies to do business with. Investors have the uncanny knack to mess up a good thing. They just don’t get it.